Yesterday, Today, Tomorrow…Where Are We?
I recently had a conversation with my youngest son, who is seven years old. “Daddy.” He says. “A few days ago I built a fort and it was fun.” “That’s great,” I tell him. “When exactly did you get to do that?” “Tomorrow” he replies, before correcting himself. “No, no. It was tonight. I mean yesterday.”
This exchange has been typical as Zachary learns where he and his (very important) events lie on the spectrum of time. Something from the past has occurred but putting it into the context of when exactly that took place (and verbalizing it correctly) is something he is learning to do. Understanding when something took place in the context of time is a bit of a challenge for him right now.
To me, this is similar to the perspective we can have with our investment portfolios and the markets. > SEE MORE
Posted by:
Pete Dixon, CFP®
Partner and Advisor
The Mystery of Annual Returns
Maybe it’s just me, but I love it when I see or hear something that can help you (the client/investor) to get a clearer perspective so that you can tune out the “noise” and worry less about money. For example, if there was something that you could know (maybe again?) that reminded you how irrelevant it is to dwell on short-term returns with investments, would you want to know more about it?
I recently came across an article written by Doug Buchan, from our advisor community (full article is here if you want to read it). He reviewed the last 92 years of market history and made an illuminating observation.
First, he points out (like we have many times before) that the “stock market” (S&P 500) has averaged 10%/year over the last 92 years. You’ve probably heard that before. It’s these next two questions, however, where it starts to get fun:
- Question #1: out of all those years, how many times did the S&P 500 end a year with an average return between 8 and 10%?
- Question #2: out of all those same years, how many times did the stock market have a return higher than 20%, or worse than negative 20%?
Posted by:
Waypoint Wealth Management
What’s the Point of a “Point”?
We’ve often said that watching the market every day has little (if any) benefit to you as a long-term investor. However, we can’t help but hear or read headlines such as “Dow rallies 500 points” or “Dow drops 500 points.” These types of stock movement headlines may make little sense to some investors, given that a “point” for the Dow and what it means to an individual’s portfolio may be unclear. Also, events such as a 500-point move do not have the same impact on performance as they used to. With this in mind, let’s take a look at what a point move in the Dow means and the impact it may have on an investment portfolio.
Impact of Index Construction
The Dow Jones Industrial Average was first calculated in 1896 and currently consists of 30 large cap US stocks. The Dow is a “price-weighted” index, which is different than more common “market capitalization-weighted” (which is simply a product of its stock price and shares outstanding) indices.
An example may help put this difference in methodology in perspective. Consider two companies that have a total market capitalization of $1,000. Company A has 1,000 shares outstanding that trade at $1 each, and Company B has 100 shares outstanding that trade at $10 each. In a market capitalization-weighted index, both companies would have the same weight since their total market caps are the same. However, in a price-weighted index, Company B would have a larger weight due to its higher stock price. This means that changes in Company B’s stock would be more impactful to a price-weighted index than they would be to a market cap-weighted index. > SEE MORE
Posted by:
Waypoint Wealth Management
What Are Three Ways That You (And We) Can Stay On Course?
We don’t expect people to fly their own airplanes or take out their kids’ appendixes, and yet we expect them to manage their retirement portfolios. In my careers I’ve done all three, and investing is by far the hardest.”
The Four Pillars of Investing
If we were to picture your retirement financial plan as an airplane flight, your investments are the trade winds carrying you toward your destination. How you invest can mean the difference between your arrival at your desired location … or it can knock you into a tail-spin.
To help you stay on course toward your own goals, we offer the “compass” of a solid investment strategy based on three key points. First, we have a strategy. Second, it’s a strategy based on reason and evidence guided by the durable science of capital markets. Third, it’s grounded in our fiduciary obligation to serve our clients’ highest financial interests. > SEE MORE
Posted by:
Waypoint Wealth Management
Well, How Do You Think About Your Retirement Income?
One of my favorite analogies for explaining retirement income is comparing it to taking water from a well. I realize that we’re fortunate and don’t need to do that much in this country, but let’s pretend that every day you go to a well to get your drinking water. Of course, you need to rely on it for providing you with water for a very, very long time. In order for the ability to quench your thirst for decades, you want to be sure you have enough of a supply of water at all times. But, you cannot control how much this particular well gets replenished with rain, so you would be careful to only take out the necessary amount to meet your needs, while not taking too much out and running a high risk of drying out the well. The level of the water, in the meantime, will rise and fall depending on the season you’re in – those rainy, plentiful seasons, and those dry and arid times when there isn’t any replenishment. Your job is to take what you need from the well, while having confidence in the ability to drink water even during those dry times. Through rainy seasons and dry ones, you need to be able to rely on a steady source of drinking water.
Retirement income is similar to this, isn’t it? > SEE MORE
Posted by:
Pete Dixon, CFP®
Partner and Advisor